17th September 2012
The Wall Street Journal's Alex Frangos says it could have serious consequences because Asia's two biggest economies are integrally tied together in trade and investment. Total trade between the two is $345 billion and although it's arguable who would be worse hit, both economies would suffer for sure.
"China has relied heavily on Japanese investment capital and technology and Japan is a key export market, its third largest after the U.S. and E.U. (not counting Hong Kong, which is mostly a transshipment point). Japan benefits from those investments it makes in China in terms of corporate profits. And China is Japan's biggest customer of expensive exports like heavy machinery and high tech gear."
Moreover, the damage from a China-Japan trade war would spread beyond the two countries, he writes. "Supply chains for everything from iPads to automobiles rely on parts and materials making it back and forth easily between Japan and China. U.S., South Korean, Malaysia, German and Thai companies are in the middle of the China-Japan economic relationship."
But despite the growing tensions, journalists Kazunori Takada and Jane Lanhee Lee, reveal that in the shops and department stores in China's main cities, there appears to be no let-up in the purchases of Japanese gadgets, clothing and other products. "Even in Nanjing, the site of the 1937 Nanjing Massacre by Japanese troops and where anti-Japanese sentiment runs high compared with most other Chinese cities, people were queuing up in front of Japanese restaurants."
"Shop owners and sales clerks said there had been no let-up in the crowds at Japanese shops and restaurants near Xinjiekou, one of the busiest shopping districts in the city, since tensions spiked this month after Japan said it was buying the islands from its private Japanese owner."
The United States, meanwhile, could be set to add to the drama by announcing it will file a complaint with the World Trade Organization this week over China's auto industry. According to the Associated Press, the Obama administration will launch enforcement action at the WTO because it believes China is illegally subsidizing exports in their autos and auto parts sectors. "The U.S. says the practice puts American parts manufacturers at a competitive disadvantage and encourages the outsourcing of production to China."
More on Mindful Money
To receive our free daily newsletter sign up here